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Crowd Fund Nation

Libi Astaire

Want to buy a piece of a promising young company and haven’t got $50,000? New investing groups allow even small investors a piece of the action

Wednesday, March 29, 2017

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LIGHT UNTO THE NATIONS “We’re changing the world with our innovations, and people from all over are coming to see what Israel is doing,” explains OurCrowd’s senior vice president of global operations, Josh Wolff. “They’re coming to our office, saying, ‘Help us. We want the best technology. We want to meet the best Israeli companies. Otherwise we’ll fail’” (

C obi Bitton, chief operating officer of Besadno Investment Group, isn’t one to speak in pie-in-the-sky hyperboles.

When he says that “crowdfunding is the hottest thing today in venture capital,” he points to a stack of papers — articles and research studies chock full of analyses and graphs — to prove his point.

“Very soon crowdfunding will be the major source of investment money for startups and entrepreneurs,” he adds. “It will bypass conventional venture-capital funding. We’re talking about billions of dollars.”

Those billions of dollars represent investment funding worldwide. But the Jerusalem-based Besadno and other Israeli equity crowdfunding companies, such as global player OurCrowd, are helping to keep a significant amount of those dollars pouring into Israeli startups. While that’s good news for Israeli entrepreneurs, equity crowdfunding is also good news for private investors who would like a chance at hitting the startup jackpot.

But before you take out your checkbook, it pays to know what exactly equity crowdfunding is — and the risks.

More Than a T-shirt

By now, most of us have probably heard of non-equity crowdfunding, thanks to the many charitable organizations and individuals who use it to raise funds for a worthy cause, such as helping an orphaned family get back on their feet or paying for a sick child’s medical expenses. Artists have also used crowdfunding to pay for producing a new album or film, while entrepreneurs use it to fund research and development or initial manufacturing costs.

Jon Medved, CEO of OurCrowd, believes in the continued future vitality of global equity crowdfunding, with Israel as a strategic center

In non-equity crowdfunding platforms such as GoFundMe, Indiegogo, and TheChesedFund, the platform provides the logistical online support. Once the campaign is live, anyone can contribute anywhere from $5 to $500 or more. In return, the contributor might get a T-shirt with the company’s logo, a CD, or some other perk. Contributors to a charitable cause get a tax receipt and the good feeling that comes from helping others.

What these contributors don’t get is a stake in the company behind the campaign, which is how equity crowdfunding is different.

In equity crowdfunding, investors receive shares of a company’s stock, in proportion to their investment. As the business grows, the investor’s stake may also appreciate in value. And when the business becomes successful enough to offer an IPO (Initial Public Offering) or get sold to a multinational corporation — a process that could take anywhere from three to seven years, on average — those early investors could make a tremendous amount of money. On the other hand, if the business goes bankrupt, investors will lose all or part of the money they invested.

Equity crowdfunding platforms are similar to non-equity crowdfunding platforms in that they act as intermediaries between investors and companies that need funding. While some platforms don’t do due diligence and evaluate a company before it’s allowed to raise money on their platform, others will offer some of the same services as a venture-capital firm. For instance, the platform’s professional staff will evaluate which startups to fund, taking away at least some of the guesswork for the investor. (Excerpted from Mishpacha, Issue 654)

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